Portugal crisis abates, but expected to return

President Anibal Cavaco Silva spoke to Portugal from the presidential palace in Lisbon on Thursday.
FRANCISCO LEONG/getty images
President Anibal Cavaco Silva spoke to Portugal from the presidential palace in Lisbon on Thursday.

LISBON — Portugal’s immediate political crisis is contained, but the country’s president, Anibal Cavaco Silva, may have inadvertently pushed it further into political uncertainty and the possibility of another international bailout.

Following 10 days of political tension and suspense during which the coalition government came close to breaking up, Cavaco Silva sought Wednesday to restore calm by ruling out snap elections and keeping the current government in office.

Cavaco Silva’s announcement ensured the country continues, for the moment at least, complying with the terms of the three-year, $101 billion rescue it received two years ago.


However, in his presidential address Cavaco Silva asked the country’s feuding political parties to surrender their political agendas and work on a shared medium-term economic recovery strategy. He also suggested the possibility of an early election in the middle of next year, but with the agreed economic strategy covering a period beyond that so as to ensure stability.

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Investors are afraid the politicians may fail to find common ground on Portugal’s economy and consequently pitch the country into chaos, or come up with a watered-down compromise that fails to reassure financial markets.

Either result could end in the country being unable to support itself financially and going back to its creditors for more help. That is precisely the kind of development the other 16 countries sharing the euro currency have long feared and fought to avoid after struggling for more than three years to escape their debt crisis.

Citigroup economists said in a note Thursday ‘‘the political crisis in Portugal is far from over.’’ It added that ‘‘the president’s proposal is likely to keep political uncertainty high in coming weeks.’’

The Lisbon stock exchange closed down 2.01 percent, at 5,423, Thursday while Europe’s main exchanges were higher. The interest rate on the country’s 10-year bonds, an indicator of how risky investors see the country, crept up to 6.79 percent.


Portugal first had to ask its fellow euro countries and the International Monetary Fund for help in 2011 to avert bankruptcy after investors, spooked by its high debts and low growth, stopped lending it money.

The bailout program runs out in one year. After that, Portugal needs to go back to markets — where investors dislike uncertainty.

The three major international ratings agencies still classify Portugal’s credit worthiness at junk status. Portugal’s fiscal health has improved over the course of its bailout program — the deficit fell to 6.4 percent GDP last year from 10.1 percent in 2010 — but the sacrifices made are now at risk.